Late Friday, President Trump signed the Further Consolidated Appropriations Act (“Act”), 2020 (H.R. 1865) which included many provisions, most notably the repeal of the Cadillac Tax. The Cadillac Tax was a provision included in the Affordable Care Act which imposed a tax on health plans if the value of the employer-sponsored health coverage exceeded a specified threshold. Employers sponsoring plans that risked surpassing that threshold would likely have cut their benefits to avoid the Cadillac tax, so repeal is great news for employees who participate in employer-sponsored benefit plans!
Prior to repeal, employer-sponsored group health plans valued at above $11,200 for single coverage and $30,150 for family coverage in 2022 would have been subject to a 40% excise tax. Notably, the ACA provision had included employee contributions to health flexible spending account (FSA) and health savings account (HSA) coverage in the calculation of a plan’s value. The Kaiser Family Foundation released a report in July of this year that estimated the share of current plans that might meet the definition of “high cost” over time, assuming modest premium growth and no changes in plan design, and found that 31% of employer plans that include FSAs would potentially be subject to the Cadillac tax by 2022, and 46% by 2030. Had the tax remained in effect, it is likely employers would have put FSAs and pre-tax HSA contributions on the chopping block to reduce the chance they would be taxed.
The Cadillac Tax was initially written to take effect in 2018, but has been delayed twice to take effect in 2022. With the expected signing of the Further Consolidated Appropriations Act, this tax no longer looms over employers’ heads.
Further good news for employers in this Act comes from the repeal of the increase in unrelated business taxable income (UBIT) for certain fringe benefit expenses. In particular, this will allow tax-exempt organizations to again enjoy benefits of pre-tax employee contributions to a qualified transportation benefit, such as Employee Benefits Corporation’s CommuteEase.
Other notable health benefit-related taxes will also be affected by the Act, including:
- Repeal of the medical device excise tax
- Repeal of the health insurance provider’s fee
- Extension of the currently reduced medical expense deduction threshold of 7.5% through 12/31/2020